Determining Your True Values Will Lead to a Successful Financial Strategy

Determining Your True Values Will Lead to a Successful Financial Strategy

“We want to retire by the time we reach 60!”

“It’s vitally important to send our kids to the college of their choice!”

“I want to quit my job and do something else!”

“We want to buy an apartment in the city!”

We all have dreams. We have those ideas that swim in our minds and create endorphins to rush through our bodies. The hurdle we frequently struggle to jump over is our ability to take those ideas and put them into action.

Lisa and Mark, both in their early 40’s, had been working hard to build their net worth. They lived carefully and thoughtfully, funding their retirement plans and living comfortably within their means. They knew how to save their money for a secure future. When we sat down to talk about their planning goals, the following conversation took place.

Lisa began, “You know, I like my career and the financial rewards it provides, but I’d really like to do something else or work part-time.”

Mark answered, “Yeah, but without your salary, I don’t know if we’ll be on track to pay for college and be able to stop working before our mid-60’s. And we also talked about summer camp for Hilary. It all costs money.”

Lisa looked dejected but offered, “I know. I just feel so torn…”

These conversations are normal. We all have that idea that magnetically draws us like a compass pointing north.

The question is, what is your truth? What is that one idea that, if not attained, will create disappointment or regret?

Determining our true values is a process of thoughts, discovery, conversation and finally an agreed-upon strategy. Lisa and Mark’s assignment was to go home, talk about their prior discussion, and consider what underlying values became clearer and more defined.

Several weeks later, Lisa and Mark returned to reveal the outcome of their conversation.

“Mark and I invested a lot of time talking about this, and I believe we’ve developed our most important values. We decided that while Hilary’s education is very important, we have agreed that unless she earns scholarships, her choices will be limited to state schools. We also expect her to contribute to her school’s tuition. While I would love to change my work situation, we’ve agreed that I will continue another five years and then transition to part-time so we can save more money for our future. We really want the option to make significant life changes in our early 60’s. Can you help us determine whether that’s possible? We value the idea of changing our lives as soon it is practical and rational.”

In summary, Lisa and Mark’s highest priority and greatest value is retiring in their early 60’s. This decision affects their big-picture core values as well as their everyday smaller values, such as the following:

Lisa and Mark made some budgeting choices that helped put them on the path to achieving their most important goal. These choices included decreasing childcare costs by choosing a less expensive option, shaving 25% off their annual vacation budget, cutting 15% off their other discretionary spending, keeping their cars for 8 to 10 years and increasing their deductibles and co-insurance on their insurance plans to save on premiums. They explored other cost-cutting ideas like cutting out cable TV and replacing paper goods like power towels and napkins with cloth.

Incremental shifts in spending, along with careful monitoring, supported Lisa and Mark on their mission to live their highest values. It’s the smartest place to start when planning your life, and the answer is your life’s most satisfying goals.

Michael Kay
Advisor
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I founded Financial Life Focus because I wanted to work with people who put your success at the forefront of everything they do; people who understand that finding balance is ... Click for full bio

An Advisor's Guide to Helping Women Become Savvy Investors

An Advisor's Guide to Helping Women Become Savvy Investors

Today, more women than ever are involved in managing their personal and household finances. In a recent study, nearly half of the women surveyed (44%) stated that they are solely responsible for their household financial decisions, compared to 35% of men1. But the study wasn’t all good news. While women may be taking the lead when it comes to their finances, they also reported that they are not confident in doing so. In fact, in every financial category included in the survey, men reported much greater confidence than women. Where was the biggest gap? You guessed it: investing.

For advisors, this presents a challenge and an opportunity. There is a 90% likelihood that a woman will be financially self-reliant at some point in her life due to divorce, becoming a widow, or choosing to marry later in life or not at all2. By taking steps to help your female clients become confident, savvy investors, you’ll not only be more effective at serving in the best interests of these women and their families, but you’ll also be able to build much stronger, more trusted relationships to help ensure each family’s assets remain in your care for decades to come.

Follow these five steps to help your female clients invest with greater confidence:


1. Urge every woman to put her financial needs first. 


Women do have a weakness when it comes to planning for the future, but it has nothing to do with a lack of knowledge, skill, or smarts. Their primary weakness is a willingness to put others’ needs first. This is a huge mistake when it comes to planning for the future. Investing for retirement simply can’t wait until the kids are grown or aging parents no longer need care. In fact, based on average life expectancies, women should plan to accumulate enough funds to last at least 20 years after retirement. The following chart illustrates the power of compounding based on an 8% rate of return to help bring that point home:

This hypothetical example assumes an annual 8% rate of return and does not take into account income taxes or investment fees and expenses. This example is for illustrative purposes only and does not represent the performance of any specific investment. An investor’s actual return is not likely to be consistent from year to year, and there is no guarantee that a specific rate of return will be achieved.

2. Educate women about the power of investing.


Security about any topic is rooted in confidence and knowledge. Educating your female clients about investment basics can help drive more confident decisions and more positive long-term outcomes. From the basics of compounding to the nuts and bolts of researching options and understanding the pros and cons of different asset classes, make it your job to help every client understand what she is buying—and why.

3. Dive into the details of asset allocation.


Asset allocation is by far the largest determinant of a portfolio’s success—even more important than the individual securities selected and timing of an investment. This is critical information for your client to understand as she pursues her financial goals.

Related: Need More Referrals? 5 Steps to Building Stronger Word-Of-Mouth Influence

4. Discuss how her investment strategy needs to evolve over time.


Part of every client’s financial education should be to understand how financial needs and goals change with each stage of life stage. Because a shorter investment time horizon creates greater vulnerability to market volatility, she needs to understand the impact of shifting a portion of her investment portfolio to more income-oriented investments as she moves closer to retirement. This Life Stages Guide can help you paint a clear picture of how allocation strategies need to evolve to fit her changing needs.

5. Be sure she’s covering all the financial bases.


Smart investing is vital, but missteps in other areas of financial planning can thwart even the best investment plan. Offer every client a basic planning checklist that includes these three important steps:

  • Focus on the big picture. Organize your important financial papers and schedule an annual review of your investment strategy with your advisor. Regularly monitor your net worth—including your assets (all investments and savings) and liabilities (mortgage, credit cards, and other debts) to be sure you’re always moving toward your end goal of a secure retirement.
  • Pay down any outstanding debt. Debt reduces your net worth, threatens your financial security today, and reduces your ability to invest for the future. Do whatever you can to minimize debt, and build an emergency fund to help pay for any unexpected expenses.
  • Make estate planning a priority. Once a year, review your will and your beneficiary designations for every account to be sure they continue to reflect your wishes. If you have children under 18, work with your advisor or estate planner to establish a trust and select a trustee to ensure your assets are managed for the benefit of your children.
     

As a trusted advisor, make it your mission to provide your female clients with the education and guidance they need to become savvy investors and make the smart, educated financial decisions. By doing so, you can help every woman you work with not only enhance her financial security, but also gain the confidence to take greater control of every aspect of her financial life.

Click here to learn more about IndexIQ.

[1] Survey conducted by Regions Financial Corp. in partnership with Vanderbilt University, 2015.

[2] The Simple Dollar, “Guide to Financial Independence for Women,” 2014. 

Disclosure: The information and opinions herein are for general information use only. The opinions reflect those of the writers but not necessarily those of New York Life Investment Management LLC (NYLIM). NYLIM does not guarantee their accuracy or completeness, nor does New York Life Investment Management LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice and are not intended as an offer or solicitation with respect to the purchase or sale of any security or as personalized investment advice. 
Laura McCarron
Building Smarter Portfolios
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Laura joined New York Life & MainStay Investments in 2009, and is currently the Director of Value Add Marketing. She is responsible for the development of investor educati ... Click for full bio